Brookfield hangs for-sale sign on troubled DTLA skyscraper

Investment firm defaulted on $319M loan tied to 777 South Figueroa earlier this year

Brookfield Hangs For-Sale Sign on Troubled DTLA Skyscraper

Brookfield CEO Brian Kingston and 777 South Figueroa Street (Getty, Brookfield, Eastdil)

An affiliate of Brookfield is selling a 52-story office tower in Downtown Los Angeles after defaulting on a $318.6 million loan.

Brookfield DTLA, a unit of the Toronto-based real estate giant, has listed the 1 million-square-foot skyscraper at 777 South Figueroa Street, in the Financial District, CoStar News reported.

The price for 777 Tower, the seventh tallest building in town, was not disclosed. Eastdil holds the listing, according to three unidentified sources familiar with the sale.

The office building is the latest in Downtown to hit the market as vacancies have shot up during a pandemic shift to remote work. At the same time, higher interest rates and economic uncertainty have increased the cost of financing.

In February, owner Brookfield DTLA said it technically defaulted on $318.6 million in loans tied to the tower, as reported by The Real Deal

In the first nine months of last year, tenants vacated 84,000 square feet of the building’s offices, causing the vacancy rate to hit 26.9 percent in September 2022, according to regulatory filings. The empty offices cost Brookfield $2.1 million in base rent a year.

In June, a contractor that had performed work at the 777 Tower sued Brookfield, claiming it was owed more than $1.3 million, plus interest. The tally of unpaid contractor filings rose to $6 million last month.

In all, Brookfield defaulted on $1.1 billion in mortgages tied to three trophy office towers in Downtown, according to The Real Deal

Two of the towers — the 41-story EY Plaza at 725 South Figueroa Street and the 52-story Gas Company Tower at 555 West 5th Street — are in receivership.

Brookfield’s decision to walk away from the office buildings suggests Downtown has lost its luster for the firm. 

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“It’s just regular business. It’s small and not relevant to the overall business,” Brookfield Asset Management CEO Bruce Flatt said of the defaults in February.

The soaring tower’s tenants include Lockton, an insurance firm, as well as law firms Arnold & Porter and Nossaman, in addition to CoStar Group, publisher of CoStar News. A sale could be a hard sell, despite the property’s celebrity.

The building with a marble lobby, designed by architect César Pelli, opened in 1991 and a decade later starred in the 2001 movie “Swordfish,” when a helicopter hauls a bus atop its 52 floors.

Ryan Patap, senior director of market analytics for CoStar Group, works in the building. He said the tower is desirable, but the buyer pool may be small, considering that institutional investors are shying away from offices. It’s a risky bet that could bring returns, he said.

“Despite it being one of the better towers in Downtown L.A., given the weakness in the market, it’s likely the buyer is going to be opportunistic,” Patap told CoStar News.

Downtown L.A. has a 19.2 percent office vacancy rate, according to CoStar, compared to a  15.4 percent vacancy for Greater Los Angeles. The average office rent Downtown is $38.76 per square foot annually, compared to $41.80 per square foot for the region.

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The price for offices has dropped significantly. In June, UCLA bought the 334,000-square-foot Trust Building at 433 South Spring Street for $40 million, or $119 per square foot. 

The sellers, Rising Realty Partners and Lionstone Investments, bought the Art Deco building in 2016 for $80.4 million, or $241 per square foot, before spending $40 million more in upgrades.

— Dana Bartholomew